In re Brendon Keith RETZ

• Decision Date: 06 September 2007
• Docket Number: Adversary No. 05-00018.,Bankruptcy No. 04-60302-7.
• Citation: 438 B.R. 237
• Parties: In re Brendon Keith RETZ, Debtor. Donald G. Abbey, Plaintiff v. Brendon Keith Retz, Defendant.
• Court: U.S. Bankruptcy Court — District of Montana

438 B.R. 237

In re Brendon Keith RETZ, Debtor.Donald G. Abbey, Plaintiff

v.Brendon Keith Retz, Defendant.

Bankruptcy No. 04-60302-7.

Adversary No. 05-00018.

United States Bankruptcy Court,D. Montana.

Sept. 6, 2007.

COPYRIGHT MATERIAL OMITTED.

Edward A. Murphy, Murphy Law Offices, PLLC, Michael G. Black, Rock Creek Legal Services PLLC, Missoula, MT, for Plaintiff.

Harold V. Dye, Missoula, MT, Ward E. Taleff, Great Falls, MT, for Defendant.

MEMORANDUM OF DECISION

RALPH B. KIRSCHER, Bankruptcy Judge.

At Butte in said District this 6th day of September, 2007.

In this adversary proceeding Plaintiff Donald G. Abbey (“Abbey”) seeks denial of Defendant/Debtor Brendon Keith Retz's (“Brendon”) discharge under 11 U.S.C. §§ 727(a)(2)(A) and (B), 727(a)(4)(A) and 727(a)(5). Brendon opposes Abbey's allegations and seeks discharge of his debts, contending that he lacked fraudulent intent and corrected his Schedules and Statements informally at the 11 U.S.C. § 341(a) creditors' meeting. After trial of this cause and review of the parties' briefs and applicable law, this matter is ready for decision. For the reasons set forth below, a separate judgment shall be entered for the Plaintiff and against the Defendant denying Brendon's discharge under §§ 727(a)(2)(A) and (B), 727(a)(4)(A) and 727(a)(5).

The agreed Pretrial Order submitted by the parties on November 20, 2006, was approved by the Court. It provides that this Court has jurisdiction of this cause under 28 U.S.C. § 1334, and that this is a core proceeding under 28 U.S.C. § 157(b)(2)(J). This Memorandum of Decision includes the Court's findings of fact and conclusions of law pursuant to F.R.B.P. 7052.

Trial of this adversary proceeding was held at Missoula on April 10 and 11, 2007, and on June 1, 4 and 5, 2007. Abbey appeared and testified, represented by attorneys Edward A. Murphy (“Murphy”) of Missoula, Montana, and Michael G. Black (“Black”) of Missoula. Brendon appeared and testified, represented by attorneys Ward E. Taleff (“Taleff”) of Great Falls, Montana, and Harold V. Dye (“Dye”) of Missoula who also testified. Other witnesses testifying included: Trustee Richard J. Samson (“Samson”), appraiser Martha Noel (“Noel”), Rodney D. Stell (“Stell”), Brendon's spouse Misty Retz (“Misty”), Brendon's brothers Eric Retz (“Eric”) and Ryan Retz (“Ryan”), Ryan's spouse Angela Rae Retz (“Angie”), Joe Bilau (“Bilau”), Riley McGiboney (“Riley”), accountant David J. Schultz (“Schultz”), William Matteson (“Matteson”), and Brendon's attorney Bruce Measure (“Measure”). Several exhibits (“Ex.”) of both parties were admitted into evidence ¹ . At the conclusion of the parties' cases-in-chief the Court granted the parties time to file briefs, which have been filed and reviewed by the Court together with the record and applicable law. This matter is ready for decision.

AGREED FACTS

The approved Pretrial Order sets forth the following agreed facts:

1. Brendon K. Retz (“Retz”) filed a voluntary Chapter 7 petition in the United States Bankruptcy Court for the District of Montana on February 12, 2004. (Case No. 04-60302, Docket No. 1).

2. At the time of the filing of his voluntary Chapter 7 petition on February 12, 2004, Retz did not contemporaneously file his Schedules and Statement of Financial Affairs (hereinafter “SFA”) with the Court (Case No. 04-60302, Docket No. 1).

3. Retz's Schedules and SFA were filed with the Court on March 1, 2004. (Case No. 04-60302, Docket No. 7). Retz and his counsel advised the Trustee at his initial Section 341 meeting his Schedules and SFA would require amendment.

4. Since the filing of his initial Schedules and SFA with the Court on March 1, 2004, Retz has not filed with the Court any amendments to his Schedules or SFA ² . Since the filing of his initial Schedules and SFA Retz has submitted additional financial information to the Trustee and appeared for two meetings of creditors.

5. The initial § 341 Meeting of Creditors was held in Case No. 04-60302 on March 19, 2004, in Kalispell, Montana (Case No. 04-60302, Docket No. 9).

6. On July 8, 2004, the continued § 341 Meeting of Creditors was held in this case.

ADDITIONAL FACTS

Additional facts are taken from the testimony and exhibits admitted at trial, or the case dockets. Trustee Samson testified that this case was one of the most voluminous cases he has ever had as trustee, with thousands of transactions, and that “suspicion, distrust ... [and] acrimony” permeated this case. Transcript (“Tr.”), pp. 96, 129. Dye testified that this case was one of the two most complicated individual bankruptcies he has ever been involved with. Tr., p. 1112. Various aspects of this complex case will be addressed separately where possible, and together where necessary.

Brendon is a graduate of the University of Montana with a degree in business management, and currently is enrolled in the MBA program. He has taken accounting classes, and performed the accounting for his own businesses. Tr., p. 462. After Brendon graduated from college he developed and implemented a business plan involving his parents and family members, a bed and breakfast resort known as the “North Forty Resort,” for which he performed the bookkeeping, maintained the ledger, wrote checks and paid bills, compiled financial statements and balance sheets. Tr., pp. 461-63.

Eric is Brendon's and Ryan's brother, and was employed by and involved with building North Forty Resort Corp. before leaving for other employment. Tr., p. 211. Eric testified that he has been an officer or director, and a minority shareholder of North Forty Resort Corp. Tr., pp. 212, 225-26. Eric does not know whether he currently is secretary or an officer of North Forty Resort Corp., and was not sure that they ever had annual meetings. Tr., pp. 213, 214. Eric testified that his parents Robert and JoEllen own 82 percent (82%) of North Forty Resort Corp., and the three brothers each owned 6%. Tr., p. 226, 409 ³ .

Brendon testified that he was a director of North Forty Resort Corp. from its beginning. Ex. 22; Tr., pp. 718-19. He testified that he has never received a dividend in the history of North Forty Resort Corp., never sold or received an offer to sell any of his 6% of shares. Tr., pp. 925-26. Ex. 22 is the minutes of the first meeting of the North Forty Resort Corp. board of directors, dated February 12, 1993, and states that Brendon was a director and appointed vice president. Tr., p. 718.

Brendon started a construction company, Timberland Construction, Inc. (“TCI”), in 1994. Tr., p. 463. Brendon was sole shareholder of TCI prior to 2001, and remained sole shareholder to the date of the filing of his bankruptcy petition. Tr., pp. 51, 713; Ex. 2, pp. 6-7, 19. Brendon performed all the accounting for TCI for the first few years until he hired a bookkeeper. Tr., p. 464. Brendon purchased a computer accounting program, “Master Builder”, to aid him in his record keeping at TCI. Tr., pp. 468-69. Brendon testified that he considers himself proficient at using Master Builder, particularly with respect to the billing, and job costing/financial reporting components. Tr., p. 470. He described Master Builder as not as interactive as other accounting programs, but that the more familiar one is with the program the easier it is to find information. Tr., p. 475.

Brendon and Misty were married in 2001, but were in the process of dissolution of their marriage at the time of trial. Tr., p. 815. They had a newborn baby shortly before Brendon's bankruptcy. Tr., p. 817.

Brendon testified that TCI grew from less than $500,000 in annual revenue in 1994 to between $4 million and $5 million in 2001. He could not remember what his salary was at TCI. Tr., p. 739. Brendon owned a 6% individual interest in his family's North Forty Resort Corp. Ex. 2, pp. 6-7, 19. Brendon owned 50% of Timberland Properties, LLC (“Timberland Properties”), with Abbey owning the other 50%, and Timberland Properties owned 100% of Creekside Lots, LLC, Copperwood Development, LLC, and other subsidiaries. Ex. 2, pp. 65-66.

Donald Abbey testified he has been a real estate investor since 1975, and a commercial real estate broker. He estimated he has done close to 10,000 real estate transactions and has interests in more than 60 companies. Tr., pp. 324, 340, 370. In 2000, Abbey testified that a majority investor attempted a hostile takeover attempt of one of Abbey's companies to liquidate its interest. Tr., p. 370.

Brendon and Abbey entered into a business arrangement in 2001 or 2002 whereby TCI and Brendon became members of Timberland Construction, LLC (“TCLLC”), Tr., p. 51. Brendon testified that his attorney Tornow created the TCLLC entity. Tr., p. 472. Abbey testified that he formed a new company with Brendon, TCLLC, of which Abbey owned 50%, in March 2002, to build Abbey a single-family residence on Shelter Island, and do normal subdivision and construction work in northwest Montana. Tr., pp. 325, 326.

Brendon testified that once TCI became a member of TCLLC, TCI no longer had significant assets which required a lot of tax accounting, and was “basically mostly just a pass-through entity.” Tr., pp. 465-66. After June of 2001 TCI did not continue to operate as a construction company. Tr., p. 471.

Brendon testified that he maintained overall authority for maintaining the books of TCLLC, to the point where they went to the accountant, Dave Schultz of the firm of Jordahl & Sliter, who prepared TCLLC's tax returns for 2001 and 2002 ⁴ . Tr., p. 466. Brendon characterized his knowledge of generally accepted accounting principles as above bookkeeper level but below accountant lever. Tr., p. 468.

Abbey wanted to have some control and be able to look inside the books of the contractor with which he was building his large single-family home on Shelter Island. Tr., p. 325. Abbey testified that he began planning his Shelter Island house and negotiating with Brendon about entering into a partnership in 2000, and they first...